September Comps, Improving Margins And Q3 Promotions From The Gap, L Brands And More

Analyzing the September sales results of soft-line retailers, MKM Partners said it believes better margins likely drove performance in the third quarter. The firm believes that the industry is largely in good shape based on Gap Inc (NYSE: GPS)'s September showing and its weekly checks.

Reduced Accent On Promotion Encouraging

Analyst Roxanne Meyer saw a lower depth of promotions at a time when retailers tend to anniversary promotional activity to comp the comp. The analyst noted that roughly 80 percent of the retailers she covers were less promotional.

MKM Partners said Gap Inc saw higher conversion and AUR combined with higher unit growth even as comps remained negative and inventories stayed lean.

Related Link: 7 Retails Stocks In Focus After September Sales Data Released

On Urban Outfitters, Inc. (NASDAQ: URBN), the firm noted that Anthropologie saw a downtick in breadth versus last year. However, a majority of the floor was at full price, the firm noted. The firm said it would continue to monitor for fashion improvement. MKM Partners views the flattish promotional levels at core Urban Outfitters as impressive, given the strong margin performance last year.

MKM Partners sees the downtick in full promotions both at Chico's and WHBM of Chico's FAS, Inc.(NYSE: CHS) over the last several weeks as encouraging. Clearance is up versus last year, the firm noted.

The firm noted that flash sales, which began on September 29 at L Brands Inc (NYSE: LB), are continuing and that promotion levels are up year-over-year. MKM Partners said it believes that the company is proactively promoting slower moving items now rather than its usual practice of promoting them after the Christmas holiday season. This, according to the firm, will give it cushion in the fourth quarter.

Ratings And Price Targets

• Chico's FAS: Neutral, $12.
• Gap: Neutral, $25.
• L Brands: Neutral, $71 Fair Value.
• Urban Outfitters: Neutral, $36.

At Last Check ...

• Chico's was up 0.56 percent at $12.48.
• Gap was up 0.91 percent at $26.49.
• L Brands was up 0.87 percent at $71.85.
• Urban Outfitters was down 0.84 percent at $36.30.

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